Question 1

Aggregate demand-aggregate supply analysis shows that in the long run the effect of increased aggregate spending on real GDP is:

Accepted Answer

A) negative. 
B) close to infinity. 
C) indeterminate. 
D) zero. 
E) positive. 
A) negative. 
B) close to infinity. 
C) indeterminate. 
D) zero. 
E) positive.

Question 2

When the actual inflation rate rises more rapidly than nominal wage rates, we would expect the short-run aggregate supply curve to shift to the right.

Accepted Answer

A) True 
 B)False

Question 3

If foreign income falls, we can expect to see all of the following, except:

Accepted Answer

A) a decrease in foreign spending. 
B) a rise in domestic aggregate demand. 
C) no change in either domestic net exports or aggregate demand. 
D) a decrease in domestic net exports. 
E) a decrease in domestic aggregate demand. 
A) a decrease in foreign spending. 
B) a rise in domestic aggregate demand. 
C) no change in either domestic net exports or aggregate demand. 
D) a decrease in domestic net exports. 
E) a decrease in domestic aggregate demand.

Question 4

The purchase of fifty new food-processing machines by the Campbell Soup Corporation would be classified as investment spending.

Accepted Answer

A) True 
 B)False

Question 5

The slope of the aggregate supply curve becomes steeper, the faster the costs of production adjust to prices and the smaller the amount of excess capacity in the economy.

Accepted Answer

A) True 
 B)False

Question 6

The wealth effect of a change in the price level refers to the fact that wealthier individuals tend to spend more on foreign goods.

Accepted Answer

A) True 
 B)False

Question 7

As the level of real GDP increases, the short-run aggregate supply curve:

Accepted Answer

A) shifts to the right. 
B) shifts to the left. 
C) becomes flatter. 
D) becomes steeper. 
E) becomes horizontal to the real GDP axis. 
A) shifts to the right. 
B) shifts to the left. 
C) becomes flatter. 
D) becomes steeper. 
E) becomes horizontal to the real GDP axis.

Question 8

A demand-pull inflation is caused by an increase in the demand for output.Therefore, economists say that this type of inflation is actually good for the economy.

Accepted Answer

A) True 
 B)False

Question 9

Consider the following statement: "If the government attempts to raise employment through increased fiscal spending, all it will end up doing will be to increase the price level." The statement rests on the assumption that:

Accepted Answer

A) the aggregate demand curve is a horizontal line. 
B) the aggregate supply curve is a vertical line. 
C) the aggregate supply curve is upward-sloping. 
D) the aggregate supply curve is downward-sloping. 
E) the aggregate supply curve is a horizontal line. 
A) the aggregate demand curve is a horizontal line. 
B) the aggregate supply curve is a vertical line. 
C) the aggregate supply curve is upward-sloping. 
D) the aggregate supply curve is downward-sloping. 
E) the aggregate supply curve is a horizontal line.

Question 10

If the exchange rate is defined as the price of the foreign currency in terms of the domestic currency, an increase in the exchange rate:

Accepted Answer

A) increases domestic demand for foreign goods. 
B) makes domestic goods cheaper in the foreign markets. 
C) lowers net exports. 
D) lowers aggregate expenditure on domestic goods. 
E) increases the domestic country's external debt burden. 
A) increases domestic demand for foreign goods. 
B) makes domestic goods cheaper in the foreign markets. 
C) lowers net exports. 
D) lowers aggregate expenditure on domestic goods. 
E) increases the domestic country's external debt burden.

Question 11

The figure given below represents the equilibrium real GDP and price level in the aggregate demand and aggregate supply model. Figure 8.3   Refer to Figure 8.3.Potential GDP is greater than real GDP at all output levels:

Accepted Answer

A) above $300 billion. 
B) between $300 billion and $400 billion. 
C) above $400 billion. 
D) below $300 billion. 
E) above $500 billion. 
A) above $300 billion. 
B) between $300 billion and $400 billion. 
C) above $400 billion. 
D) below $300 billion. 
E) above $500 billion.

Question 12

A lower domestic price level raises aggregate expenditures and, therefore, shifts the aggregate demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 13

Firms' profits or production do not increase in the long run because:

Accepted Answer

A) some factors of production are fixed in the long run. 
B) all the factors are variable in the long run. 
C) changes in factor costs completely offset any change in price level. 
D) there exists an excess capacity in the economy in the long run. 
E) factor costs remain fixed in the long run. 
A) some factors of production are fixed in the long run. 
B) all the factors are variable in the long run. 
C) changes in factor costs completely offset any change in price level. 
D) there exists an excess capacity in the economy in the long run. 
E) factor costs remain fixed in the long run.

Question 14

If the level of prices falls, the real value of wealth also falls.

Accepted Answer

A) True 
 B)False

Question 15

A simultaneous increase in both unemployment and inflation is most likely to be the result of a(n):

Accepted Answer

A) increase in long-run aggregate supply. 
B) increase in short-run aggregate supply. 
C) decrease in the aggregate demand curve. 
D) a simultaneous outward shift of the aggregate demand and supply curves. 
E) a decrease in the short-run aggregate supply. 
A) increase in long-run aggregate supply. 
B) increase in short-run aggregate supply. 
C) decrease in the aggregate demand curve. 
D) a simultaneous outward shift of the aggregate demand and supply curves. 
E) a decrease in the short-run aggregate supply.

Question 16

The table given below reports the inflation rate in the U.S.and Canada for two years. Table 8.1
  Refer to Table 8.1.Assume that the exchange rate is fixed at 1.4 CAD = 1 USD and that price changes for lumber are identical to the inflation rate for each country.If Canadian lumber is sold in year 1 for 5, 500 CAD, what is the price of that lumber in year 2, given that exchange rates do not change?

Accepted Answer

A) 5, 500 CAD 
B) 7, 977 CAD 
C) 5, 698 CAD 
D) 7, 700 CAD 
E) 9, 700 CAD 
A) 5, 500 CAD 
B) 7, 977 CAD 
C) 5, 698 CAD 
D) 7, 700 CAD 
E) 9, 700 CAD

Question 17

The interest rate effect suggests that investment spending and planned aggregate expenditures fall when the general price level rises.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is true of the disposable income of the households?

Accepted Answer

A) An increase in the average price level lowers the disposable income of the households. 
B) Disposable income refers to the purchasing power of nominal income. 
C) Increase in direct taxes will lower disposable income. 
D) Decrease in government transfers will increase disposable income. 
E) Disposable income refers to the net private transfers of the household sector. 
A) An increase in the average price level lowers the disposable income of the households. 
B) Disposable income refers to the purchasing power of nominal income. 
C) Increase in direct taxes will lower disposable income. 
D) Decrease in government transfers will increase disposable income. 
E) Disposable income refers to the net private transfers of the household sector.

Question 19

An increase in aggregate demand normally does not cause inflation.

Accepted Answer

A) True 
 B)False

Question 20

In the 1970s the international price of crude oil rocketed because:

Accepted Answer

A) the demand for crude oil fell short of its supply. 
B) a new source of natural gas was discovered. 
C) the demand for automobiles increased drastically. 
D) the supply of oil was restricted by the oil exporting countries. 
E) of the appreciation of dollar in the international market. 
A) the demand for crude oil fell short of its supply. 
B) a new source of natural gas was discovered. 
C) the demand for automobiles increased drastically. 
D) the supply of oil was restricted by the oil exporting countries. 
E) of the appreciation of dollar in the international market.

Exam 11: Macroeconomic Equilibrium: Aggregate Demand and Supply

Aggregate demand-aggregate supply analysis shows that in the long run the effect of increased aggregate spending on real GDP is:

When the actual inflation rate rises more rapidly than nominal wage rates, we would expect the short-run aggregate supply curve to shift to the right.

If foreign income falls, we can expect to see all of the following, except:

The purchase of fifty new food-processing machines by the Campbell Soup Corporation would be classified as investment spending.

The slope of the aggregate supply curve becomes steeper, the faster the costs of production adjust to prices and the smaller the amount of excess capacity in the economy.

The wealth effect of a change in the price level refers to the fact that wealthier individuals tend to spend more on foreign goods.

As the level of real GDP increases, the short-run aggregate supply curve:

A demand-pull inflation is caused by an increase in the demand for output.Therefore, economists say that this type of inflation is actually good for the economy.

Consider the following statement: "If the government attempts to raise employment through increased fiscal spending, all it will end up doing will be to increase the price level." The statement rests on the assumption that:

If the exchange rate is defined as the price of the foreign currency in terms of the domestic currency, an increase in the exchange rate:

The figure given below represents the equilibrium real GDP and price level in the aggregate demand and aggregate supply model. Figure 8.3 Refer to Figure 8.3.Potential GDP is greater than real GDP at all output levels:

A lower domestic price level raises aggregate expenditures and, therefore, shifts the aggregate demand curve to the right.

Firms' profits or production do not increase in the long run because:

If the level of prices falls, the real value of wealth also falls.

A simultaneous increase in both unemployment and inflation is most likely to be the result of a(n):

The interest rate effect suggests that investment spending and planned aggregate expenditures fall when the general price level rises.

Which of the following is true of the disposable income of the households?

An increase in aggregate demand normally does not cause inflation.

In the 1970s the international price of crude oil rocketed because:

Economics: The World Around You

Choice, Opportunity Costs, and Specialization

Markets, Demand and Supply, and the Price System

The Market System and the Private and Public Sector

Elasticity: Demand and Supply

National Income Accounting

an Introduction to the Foreign Exchange Market and the Balance of Payments

Consumer Choice

Supply: The Costs of Doing Business

Unemployment and Inflation

Profit Maximization

Aggregate Expenditures

Perfect Competition

Income and Expenditures Equilibrium

Monopoly

Fiscal Policy

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Money and Banking

Market Failures, Government Failures, and Rent Seeking

Monetary Policy

Macroeconomic Policy: Tradeoffs, Expectations, Credibility, and Sources of Business Cycles

Resource Markets

Macroeconomic Viewpoints: New Keynesian, Monetarist, and New Classical

The Labor Market

Capital Markets

Economic Growth

Development Economics

the Land Market and Natural Resources

Aging, Social Security and Health Care

Globalization

Elasticity: Demand and Supply

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

Consumer Choice

International Trade Restrictions

World Trade Equilibrium

Exchange Rates and Financial Links Between Countries

International Trade Restrictions

Supply: the Costs of Doing Business

Exchange Rates and Financial Links Between Countries

Profit Maximization

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Antitrust and Regulation

Market Failures, Government Failures, and Rent Seeking

Resource Markets

The Labor Market

Capital Markets

The Land Market and Natural Resources

Aging, Social Security and Health Care

Income Distribution, Poverty and Government Policy

World Trade Equilibrium

International Trade Restrictions

Exchange Rates and Financial Links Between Countries

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